Commission rejects auditors’ call to tighten control of EU member states’ debt

Greek Finance Minister Euclid Tsakalotos, European Commissioner for Economic and Financial Affairs, Pierre Moscovici and The President of the Eurogroup, Portuguese Finance Minister Mario Centeno during a meeting of the Eurogroup in Luxembourg, 21 June 2018. [EPA-EFE/JULIEN WARNAND]

The European Commission has rejected the European Court of Auditors’ recommendation to strengthen surveillance of EU member states with high levels of public debt.

The auditors will publish a report on Thursday (12 July) calling on the EU executive to improve the monitoring of member states once they exit the excessive deficit procedure.

When countries’ deficits are below the 3% GDP threshold, they enter into the preventive arm of the Stability and Growth Pact, the EU’s fiscal rulebook. Under the preventive arm, wayward countries have to enter a fiscal path in order to control their debt levels.

In their report, the auditors are expected to conclude that the European Commission should strengthen the preventive arm in order to avoid deviations from the so-called medium term objectives.

The EU executive “should make bringing countries’ budget balances into line its main priority, rather than using its power to allow them to move further away from their budget targets,” and EU official told EURACTIV on condition of anonymity.

But the official said the Commission rejected those recommendations, claiming that the current framework was fit for purpose.

The European Fiscal Board, the EU’s finance watchdog, wants clearer rules and real sanctions to punish profligate member states and limit the European Commission’s discretion to interpret the Stability and Growth Pact.

Trigger concerns

The auditors warned that, when the next recession hits Europe, the Commission’s approach “is likely to trigger financial market concerns” in view of the high debt-to-GDP ratio in various member states.

For that reason, they said the Commission should use the instruments provided by the SGP to address “the continuous deviations” from the adjustment path over several years to balance their budgets.

The EU’s fiscal rules allow for triggering a debt-based procedure against countries drifting away from their targets to balance their budgets.

Instead, the Commission in early 2015 gave additional leeway to national governments, in particular when they increase public investment or implement structural reforms.

The refugee crisis has reignited tensions between the champions of strict budgetary discipline, led by Germany, and those who want to ease interpretations of the rules, led by Italy and France.

Pierre Moscovici, the EU Commissioner for Economic Affairs, argued at the time that progress made in the member state’s economies proves that the current framework works.

In May, he hailed as an “historic achievement” the fact that, for the first time since 2008, all member states’ deficits will be below 3% this year. Debt levels are also slowly declining in the EU as a whole.

The Commission declined to comment on the report before publication.

The auditor’s member responsible for the report is Never Mates, a former official from International Monetary Fund, which has recommended to simplify the Stability and Growth Pact to focus more on debt control.